Financial Management Old Question Paper Year 2017

Financial Management Old Question Paper Year 2017 – Tribhuvan University | BBA

Financial Management Old Question Paper Year 2017 | Tribhuvan University | BBA

Group “A”

Brief answer questions:  (10x 1=10) 

Indicate whether the following’ statements are True or False’. Support your answer with reasons.

a) The capital structure decision is concerned with financing decision as executive finance decision.

b) The cost of common stock is generally less than debt because of tax exemption.

c) The payback period consider all cash flow of total life of a project.

d) The strategic plans are the stream of long-term plans to achieve corporate objectives.

e) A firm with degree of operating leverage of 3 times and degree of financial leverage of 2 times. If sales are increased by 5 percent then its operating income will be changed by 30 percent

f) If firm earns Rs.8 million and plans to invest in a project of Rs.10 million with 40 percent debt ratio, dividend payout ratio will be 25 percent when the firm uses residual dividend policy.

g) The firm with strong liquidity position prefers stock dividend rather than cash dividend. 

h) The goods in transit of a firm exists only when order frequency is higher than lead/delivery time.

i) If Alpha Manufacturing Company (AMC) converts is inventory after 40 days, collects receivables after 30 days and makes its payments to its suppliers after 20 days. AMC’s cash conversion cycle is 30 days.

j) The credit standards, credit terms and collection policies are major elements of receivables.

Group “B”

Short Answer Question     [5*6=30]

11) What is financial management? Explain in brief about managerial/ executive finance function.

12) The Doti Dolls Company (DDC) produces and sells dolls in far western region of Nepal. The selling price of dolls is Rs.25 per unit; variable cost is15 per unit and fixed cost is Rs.100,000. 

  1. Calculate DDCs operating break even points both in units and rupees
  2. What is DDC’s required sales units of dolls for desired net profit at Rs.25,000 when it uses 10 percent debt of Rs.100,000 and corporate tax rate is 30 percent?
  3. Determine DDC’s degree of operating leverage, degree of financial leverage and degree of total leverage at production and sales of 20,000 dolls. 

13)The following are the shareholders equity position of Karnali.

Particular Amount (Rs)
Common stock (50000 shares at Rs 100 par) 5000000
Additional paid in capital 4000000
Retained  earning 6000000
Total shareholder’s Equity 15000000

Current market price of stock is Rs.200 per share. What is effect on number of shares, par value per share, market price per share and shareholder’s equity position if 10 percent stock dividend is declared? 

14) Banepa Manufacturing Company (BMC) has the following three alternative for its short-term financing of Rs.100,000 for one year.

Alternative 1 A 10 percent simple interest bank loan with 10 percent

Compensating balance requirement.

 

Alternative 2  A forgo cash discount under credit term 2/10 net 30.
Alternative 3 An 8 percent discounted interest loan with 10 percent compensating balance requirement.

Which alternative is best for BMC? Why?

15) The Krishna Bakery (KB) produces and sells 2,000,000 breads annually. To produce bread, the wheat must be purchased in multiples of 1,000 kg. Ordering cost includes grain elevator removal charge of Rs.2.000 is Rs.5,000 per order. Annual carrying costs are 20 percent of the purchase price of Rs.2.50 per kg. The company maintains a safety stock of 50,000 kg. The delivery time is 4 weeks. Assume 50 weeks a year.

  1. What is the economic order quantity for KB?
  2. What is inventory cost of KB at EOQ level?
  3. At what inventory level, should a reorder be placed by KB?
  4. The wheat supplier offered 1 percent quantity discount on total value of wheat purchased if KB buys 400,000 breads per order. Should KB take discount?

16) The Koshi Food Corporation (KFC)’s balance sheet is given below:

Balance Sheet of KFC for the year ended Chaitra 31, 2073

Assets Rs Liabilities and equity Rs
Cash 30000 Accounts payable 20000
 Receivables 40000 Notes payable 40000
Inventories 60000 Accruals 30000
Total current assets 130000 Total current liabilities 90000
Net fixed assets 570000 Long term debt 210000
    Common stock 250000
    Retained  earning 150000
Total assets 700000 Total liabilities and equity 700000

Sales in 2073 were Rs.200,000 which is expected to increase by 30 percent in 2074. Assume that KFC was operating at full capacity and has no idle capacity of its assets. The profit margin of the company in 2073 was 10 percent which is expected to maintain at the same level in 2074. The KFC maintains its retention ratio of 30 percent in 2074.

  1. What is additional investment needs in assets?
  2. What is additional amount of spontaneous financing?
  3. What is addition to retained earnings for 2074?
  4. What is an additional fund needed for 2074?

Group “C”

Comprehensive Answer Questions     [2*10=20]

17. A. Recently, Gandak Power Company (GPC) has a capital structure consisting of 40 percent yield and 60% equity to maturity. The risk free rate is 5 percent, and the market risk premium is 8 percent. Using the CAPM, GPC estimates that its cost of equity is currently 15 percent. The company has a 40 percent tax rate. 

  1. What is GPC’s current WACC? 
  2. What is current beta on GPC’s common stock?
  3. What would GPCs beta be if the company had no debt in its capital structure? 
  4. Point out any five factors affecting capital structure decision.

B . The Jayaram Manufacturing Company (MC) is considered to maintain the optimal capital structure with composition of 50 percent debt and 50% percent equity. New bonds will have a 10 percent coupon rate and will sell at par. Common stock, currently selling at Rs.60 a share, can be sold to net Rs.54 a share. Stockholders’ required rate of return is estimated to be 12 percent, consisting of a dividend yield of 4 percent and an expected growth rate of 8 percent. Retained earnings are estimated to be Rs.13.5 million. The marginal tax rate is 40 percent. Total capital budget/ investment requirement of JMC is Rs.135 million. 

  1. To maintain the present capital structure, how much of the capital budget must JMC finance by equity?
  2. How much of the new equity funds needed will be generated internally? externally? 
  3. Calculate the cost of each of the component capital.
  4. At what level of capital expenditure will there be a break in JMCs schedule?

18) The Parasi Cement Factory (PCP) is considering the following two investment projects an after-tax cash flow of the projects are given below.

Year 0 1 2 3
Project X (Rs) (200000) 80000 80000 80000
Project Y (Rs) (200000) 70000 80000 90000

  1. Determine the net present values of each project if cost of capital is 10 percent.
  2. Determine the internal rate of returns for each project.
  3. If the two projects are independent, which project/projects should be selected?
  4. If the two projects are mutually exclusive, which project should be chosen?
  5. What are benefits of payback period?
  6. Differentiate between scenario analysis and sensitivity analysis in capital investment decisions.

 

You may also like:

Financial Management Old Question Paper Year 2019

Financial Management Old Question Paper Year 2018